Gold loses shine in liquidity-driven share market rally

By SHAZNI ONG / Pic BLOOMBERG

DEMAND for precious metals like gold as a safe haven asset has not diminished as equity markets rally on increasing optimism and liquidity.

The stimulus measures from governments and central banks has seen investor sentiment for gold continue to hold with its price ranging near the US$1,700 (RM7,276) an oz levels on the back of slithering US-China tensions and a weaker US dollar.

AxiCorp Financial Services Pte Ltd global chief market strategist Stephen Innes said gold is struggling a little, probably more on the back of the continued risk-on mood in equities than anything else.

“The consensus is finding it difficult to be too bullish on the yellow metal at the moment with the equity market soaring higher by the day,” he said in a note yesterday.

Innes noted that the upward momentum in risk appetite continues unabated as the markets focus on abundant liquidity and hopes for the economic upswing.

“The liquidity angle is not a new development as central banks and governments have been laying it on thick.

“But with economies emerging from lockdown, it seems markets are increasingly confident that World War II-sized stimulus that has already been injected into the economy will find its way into every liquid asset imaginable, which is providing the massive reopening tailwind,” he said.

OCBC Treasury Research economist Howie Lee said the firm continues to see resistance for gold at US$1,750/oz given current inputs of interest rates and dollar strength.

“We maintain the view that prices may stay elevated through the second quarter. Rising US-China tensions could propel prices higher and worth close monitoring,” he said in a recent commodity outlook note.

Gold has been widely perceived as a safe-haven investment and it tends to gain during times of economic and political uncertainties.

“Despite the run-up in gold prices this year of 11.7%, we have increased or maintained gold allocations of 15%-20% for each of our portfolios.

“Gold has proven to be an asset that provides portfolio insurance against market crashes. It also offers protection against the dilution of paper money with an increase in quantitative easing.

“The latter has become a rising concern amongst investors globally given the massive monetary stimuli introduced by central banks around the world to support the economy against Covid-19,” StashAway Malaysia Sdn Bhd country manager Wong Wai Ken told The Malaysian Reserve yesterday.

Wong believes the local market has seen an onset of retail investors who have more free time to pick stocks.

“Because of that, we think retail investors should also look to gold exchange-traded funds to balance their portfolio’s asset allocation.

“Aside from offering portfolio insurance, gold remains undervalued. Gold is still 5.7% beneath our perceived fair value,” he added.